Kenneth Rogoff Lecture 3/3/2026

Okay. So, um I think that we're ready to start. It's um my my great pleasure to welcome you all to this year's um Arnold lecture. We're especially honored to welcome members of the Rice community including um Provost Amy Ditmar, my dean Dean Rachel Kimbro, our vice presidents, member of the board of trustees, um alumni community me partners, faculty and students. Your presence reflects the strength and spirit of this community and we're truly grateful that you have taken the time to join us for this special occasion.

Uh, this lecture was known for some time by another name. It was always meant to bear Doyle's name. And I'm glad to set the record straight because if anyone deserves to have their name on something in this university, it's Doyle Arnold. Before Doyle introduces our distinguished speaker, I want to take a moment to recognize the person who who has made this lecture series possible. Doyle is a proud Rice alumnist, a member of Weiss College. I am pleased to serve a magister of Weise College. And so I can tell you this is someone who has been part of the FA fabric of this university for a very long time. He earned his bachelor's degree in economics and mathematics in the 1970s before going on to receive his MBA from Stanford. And from there he built an impressive career. Senior leadership roles at Wells Fargo and Bank America Corporation, senior deputy controller of the currency. So he has a few ideas about the dollar. And he's he also worked um in the secret uh in the Treasury Department during the Reagan

administration. uh ultimately vice chairman and chief financial officer of Zion's Bank Corporation where he helped oversee a $51 billion institution with some 500 banking offices across the western United States. That's before his retirement. But what I really want you to know about Doyle is not in his resume because as impressive it is, he doesn't really tell what the person he is. He just tell us what he has done. Doyle has been extremely generous not just with his financial support for this lecture series and now a new endowed chair in the department of economics but also with his time, his expertise and his deep abiding love for Rice University.

Personally, Doyle has been an invaluable mentor as I've navigated the world of academic administration. something I can assure you my training in labor economics never quite prepared me for. I could not have asked for a better uh better guide. When I start to drift, he grounds me. And when I get too caught up in the mechanics of running a department, he helps me dream. He did just so when he asked me a question about a week ago. That rare combination love for this institution, pragmatism and vision is I think what defines you Doyle. It what makes this lecture series reflect the very best of what Rice can be. Please join me well in welcoming Doyle Arnold.

>> Wow. Thanks for that introduction, Flavio. Um, the only thing I can say is it's better than I deserve. Um, by far. Uh, pleased to, uh, tell you a little bit about tonight's speaker and pleased to have him here. He's had a long and varied career. Um, includes time as chief economist of the IMF. For those of you who are movie movie buffs, no, that's not the Tom Cruz International mission for impossible mission force. It's the International Monetary Fund. He's a prestigious chair of international economics at Harvard and um but before any of that was a highly ranked grandmaster chess player. So I don't know what Ken is going to actually talk about tonight. It might be opening moves in chess or it could be uh international economics or the future of the dollar. I first he first really came to my attention circa 2009 2010 when I was vice chair and CFO of Zans's Bankorp and um before that before those years I was about this much taller but that was the great financial crisis and we were trying to

survive and Ken published where are you there a book which I actually took the time to read even though I was working seven days a week. um called uh this time is different. It traced uh several centuries of financial and economic crises and and how we got into them, how they evolved, whatever. And um I thought, wow, what a great book. If only he had worked harder and faster and published it about four years earlier before we before we descended into the maelstrom for a few years. But eventually we returned. Um, more recently he's written the book that is the title of um, I guess I guess at least his appearance here if it's not the lecture u, our dollar your problem which is paraphrasing for those of you who don't know Texas history. There's a guy named John Connelly that was governor of Texas that was in the car with JFK when he was assassinated and he later on became uh secretary of the treasury and this was his retort to some Europeans who were rather ticked at the prospect of the US going off the elim

closing the gold window. Um so lots to talk about. So pleased to have you here Ken. Thank you for coming and please join me in welcoming Dr. Ken Rogoff.

>> Thank you. Thank you so much. I think I'm supposed to turn this on. Um

there we go. That looks like it it seemed No. Yes, that worked. Um, anyway, thank you very much. It's a pleasure to be here. I'm embarrassed to say I don't know if I've spoken at Rice before. I'm old enough I might have forgotten, but I did I looked it up on my uh on my calendar, which I keep back, you know, 30 years, and I don't think I have. I've of course known many of you. Uh, so uh, you know, I don't know why that's possible that I haven't, but I'm really glad to get the the chance. Uh and thank you very much uh uh uh Doyle and Flavio uh for inviting me. Um I'm very excited to talk about uh this topic. Um I'm not just going to talk about my book, but it builds on my book. Uh, oh gosh, I took I uh yeah, so I I have the the cover here.

And as uh uh Doyle said, the phrase our dollar, your problem comes from this famous episode when Nixon suspended gold. Now, it wasn't technically a default, but it kind of was a default back in the 1930s when everyone could get gold for dollars. It actually said on your dollar bill, you can go look at an old one, payable in gold. And you could take it, at least if you had a big enough pile, you could take it uh to a bank or the Federal Reserve window and actually get gold. And uh Franklin Roosevelt famously suspended that and basic eventually eliminated it. And that of course was a default. People who think the United States has never defaulted have never looked at history. I mean, of course, we defaulted after the revolution. You've seen Hamilton, but we defaulted in 1930.

And that's, of course, economically, it's very clear it's a default. You promised to pay in gold and we had a lot of inflation then and it was worthless. But the Supreme Court actually ruled that it was a default. There's a book by Sebastian Edwards about this uh which shows this and Franklin Roosevelt bullied the Supreme Court into sort of doing a you know a decision which really had no bite. They said it's a default but no harm no foul and they basically awarded next to nothing. Uh, of course, if you were the United Kingdom, which held lots of dollars thinking it was gold, if you were India, it was a default. It felt like a default. It was a default. And, uh, 19, I mean, when Argentina promised to pay one peso, you know, one peso is one dollar back when I was chief economist at the IMF and they said, just kidding, it'll be two pesos, $1. That was a default. Now, their Supreme Court ruled it was legal, but you know, it's the same thing. But in now, what happened in 1970 was after World War II, we went

into an exchange rate system where the dollar was convertible to gold and everything else was convertible to dollars. But the dollar was only convertible to gold for officials. But gold was still very important as an anchor in the system. There's a a very important moment in 1971 when Nixon decided to go off the gold standard. Needless to say, my book talks a bunch about it. Um, and in many ways, I might say Nixon is probably the closest uh analogy we have to Donald Trump. I'm not trying to insult or compliment Nixon. Uh, but I I think you can you can look at what Nixon says in private on the Watergate tapes and he sounds a lot more like the unfiltered Donald Trump when he's talking on TV that he says things like I don't give a flying f about the Italian lera, you know, in one discussion. Uh so um one of the reasons the title spoke to me was the arrogance of Connelly saying to people when they're complaining, "What are we going to do with our dollars? You're inflating. You're making them

worthless." And he said, "Well, it's our dollar. It's your problem." Is I didn't like the arrogance of it. Now, we Americans are very arrogant. You Texans are probably even more arrogant. Uh but uh you know, I still didn't like it. I actually had been a professional chess player in my youth. I more or less dropped out of high school and that was that was a very difficult time to be an American living abroad. Uh Vietnam was going on. Uh we had a lot a lot of uh race riots going on around our cities and so everyone would say you're American, you're racist, you're a wararmonger, and your food is terrible.

Our food has improved a lot. But uh uh you know I I it's it's you know was very um I didn't like the feeling of our our arrogance. But the other thing that spoke to me about it was that the irony that it was actually our problem. We didn't have a game plan for how to manage our own currency once we had gone off the gold standard. And I think that's part of what led to the inflation of the 19 uh the 1970s. Um so uh it it's important to understand that the the United States um dollar was set up to be on top after World War II, but it's actually a very narrow base of countries that were following it. A lot of the world wasn't globalized at that time. Obviously, China and the former Soviet block, they weren't part of the system. A lot of Latin America, Asia, a lot of countries weren't. It was the if you did it by an income weighted basis, the dollar was very big. But in terms of a global basis, it wasn't. And one of the things my book goes over in this history is going through the ups and downs of this.

We've had ups and we've had downs. The 1970s was not kind to the dollar. We lost a lot of market share during the 1970s. It took a long time to recover it. Uh and you know, I'll show you in a second later reaching a similar peak. And I only point that out and I'll that people there so many people just say, "Well, of course the dollar is on top and of course nobody uses anything else. Why would they?" First of all, that's not quite true. But also, it has this lack of understanding of history and nuances of uh trying to understand where things might be going. Uh I should say also I finished this book before I knew who would win the election. It was basically done in late summer of 19 of 2024 and I, you know, had some rounds of from a copy editor, but by October 2024, it was ready to go to press. I was allowed to add a few sentences at the end the day after the election, but nothing else changed. But, uh, and and I'm I'm very, uh, proud of the book creatively. it I was uh it was anchored in research over 10 years that I did and

especially the last part of the book and many other things. It takes a very unusual approach to the writing. You can decide. I hope you enjoy it. But I I felt I had something I wanted to say and I had to say it in a way that might engage people. It's certainly written to a broader audience, but I was very much also writing to the profession. I'd been during that 10-year period pretty successful in publishing my work in top journals, but I felt I was very much a minority in a lot of debates about issues like the future of real interest rates, China, the exchange rate system and a number of other topics. And I wanted to engage uh the profession as well as uh as well as this uh broader audience. Uh I um it I have an academic publisher. I actually had many bids from commercial publishers but I had been very happy with how this time is different had done and my editor I'll come back to that at the very end and I followed my editor and I uh he had moved from Princeton University Press to Yale

University Press and I'm I'm happy I did but universities maybe not Rice but most universities university presses are not very economically motivated. it. So, they're just sitting on it and somehow they thought it would look pretty in their spring edition of their catalog and they sat on it and it it came out instead of coming out in like January of 2026 and I was very creatively proud. I hoped a lot of people would be interested. It came out right after Liberation Day and you know sort of became the book of the moment and probably sold literally you know 10 or 50 times more copies than it would have otherwise and more importantly the message I think uh uh resonated more because when I'd shown people a lot of the book is really history intellectual history and again I try to make it interesting uh but a lot of the book is about that but the the end of it ends in a rather uh out of the box place where I argue you have to think about political economy factors and not just these usual dry macroeconomic factors that central

banks look at. And if you look at those things, whichever party is in power, uh we're probably going to be in for a very rocky period. The world's going to be in for a rocky period. And I showed it to uh colleagues in international finance. Not the whole thing. I would tell them about it. I showed it to uh I told people in finance. I told uh business people and they basically said no you know this this is you're nuts. You know this this is wrong. And then of course when it came out eventually came out people said why are you so calm? You know why didn't you say something more extreme than you said? Part of the answer to that is I want to be around for 20 years and you want to be a little careful uh what you say. Um certainly Donald Trump's been great for my book.

Maybe not for the world, but he's been great for my book and he's been the gift that keeps on giving, you know, as far as making it interesting. I actually think Kla Harris would have been great for my book also. I was rooting for her. I mean, publicly I supported her. I'm at Harvard. if I didn't, no one would take my classes. But, uh, I I write a lot about the progressives and ideas I think that were just nuts that they had, uh, of basically we can just make everything free and issue dead and we don't have to worry about it. And Don, those of you that are economists are at least aware, maybe others, that Donald Trump's complained about the independence of the central bank, right?

We can come back to that. Believe me, the progressives don't like it either. Elizabeth Warren is my neighbor in Cambridge. I mean, she lives a block away. She's my neighbor in Cambridge, Massachusetts. I respect her enormously. I strongly agree with three out of every 10 things she says. Uh, but I've had the opportunity to uh speak to some of her staff and people, her adviserss, who by the way make her look like Ronald Reagan uh by comparison. But the progressives don't like central bank independents.

They don't even like banks. And I I discussed this. I I discuss it not I discuss the literature of what people are writing and what the leading thinkers are saying. And I I I actually think obviously we'd have lived in a very different world uh if that had happened. But the macro issues that I talk about having to do with where our deficits are somewhat very careless. I think I I discuss in the book that I think we'll eventually have a fiscal crisis. Not because we have to, but because the American public's not ready to compromise until that's happened. Uh, central bank independence is likely to be under assault. We're likely to have uh uh we're likely to have volatility and I I think it would have happened either way. Somebody quoted back to me uh something or somebody told me, you know, about something Donald Trump had said. They this must have been played recently. I don't watch the internet, but somebody saw it where, you know, uh this person said, uh shows Donald Trump saying we can't vote for Harris. If we

vote for Harris, we're going to end up with big government, inflation, and we're going to be in a war. Well, I voted for Harris, but uh but I I you know, there's a tendency to say it's all about Donald Trump, and that I think that's completely wrong. I think there are underlying political economy factors which would dictate where things were going regardless. And uh one of uh a thing I've emphasized in uh my distant past work uh especially and also my recent work Hassan Auzi is here my co-author uh we have a paper coming out in the AR also about political economy of central banking. I think it's a thing economists need to pay more attention to. Uh okay uh this this is a graph of the dollar. Okay, I made I didn't capture it, appreciate it a little bit the last couple days, but it's a it's an index I like a lot. You can look at it uh get it off the Fred website, the Federal Reserve Bank of St. Louis website. It's a measure of the purchasing power of the dollar. There are a lot of different ways to measure

that, but it's a particular way using price indices where um you're looking at the trading partners of the dollar and you're looking at how much it can buy. And you can see from this higher means the dollar's richer, it's more valuable. The dollar has been on this incredible uh 15-year run uh where it's just going up and actually you know what it's it came down a little bit during the Trump presidency but not that much yet. I don't have a figure here extending it back in time. It's a little there are different ways to do it and it's like a little bit of a technical exercise to do it. I didn't do it for you here, but the dollar's basically been this high twice before in modern times. 1985 during the uh Reagan era, it was similar and fell by close to a third. Uh depends on how you measure it, which index you use, even as much as 40%. It did it again in 2002. Uh that's when I was chief economist at the IMF and I was pointing to 1985 and saying it was very high and it it came down uh by a similar amount

and I wouldn't be at all surprised if it ends up coming down a similar amount. Now it's not necessarily because of our policies. We have a very hard time explaining this. But one of the very few things we understand about exchange rates is when it's way out of line on what you can buy. Think of what a Big Mac or a Starbucks costs or anything you want to pick. And if you go to almost any other country now, the the dollar seems really expensive. I've lived long enough, traveled long enough, I've been in all versions of this cycle. I was just in Japan and it's just crazy how low the yen is. I was there in the 19 early 1990s which I write about in uh the Bank of Japan there and it was just the opposite. I mean it was unimaginably expensive and looking not just at the dollar but lots of exchange rates, lots of different periods. There's something you can say. My book talks about this a little but it's not what the book is about. The book is rather about the dollar as the lingua frana of the global

financial system. how it's used in trade, how it's used in finance, and also I'll come to it, how we dominate the back office of the global financial system, the banking system, the so-called rails, that's the jargon of when you make a transaction, how does it get from A to B? That's where the dollars uh absolutely, you know, been dominant uh and where there's, I think, a lot of incentive to try to change that. Now one of the reasons it's been dominant is the US is very big. Now this is a graph where I only talk about the dash top line which I think is more meaningful. The bottom line uses some measure of purchasing power parody which the fact that China can feed a lot of people makes it seem much richer if you use US prices. Same for India. But I think the dash lines in terms of global economic power is more meaningful and it's the US share of of global GDP converted at market exchange rates. Uh if the dollar falls say 20% that'll drop quite a bit. I mean it's sensitive to that. That's one of the reasons for many

things we prefer the lower line which is not sensitive to that. But after World War II, the US was just unbelievably dominant. I mean, we had we had 50% of global manufacturing, believe it or not, after World War II. I don't even know what the number is now, but I I want to say 2% or something like that. uh it's very hard to compare global GDPs across uh back then because actually the concept of national product was only invented in the 30s and most countries hadn't implemented it. So the figures we use, this is also in my earlier book this time is different. They come from things economic historians have done and trying to backcast things. But I think any way you did it, the US was huge relative to the rest of the world. I give it there hitting 37% may but maybe it was higher. It's come down but not nearly as fast as everyone thought it would. I mean the rest of the world was in rubbles. Germany rebuilt, Japan rebuilt, and don't forget how China's come up, India's come up, and the fact

that the United States still accounts for a quarter of global GDP by market measures, it's incredible. It's very surprising. I think it's something I want to say even 20 years ago, no one would have predicted. You think today, I I again sound like an arrogant American, but if you think today, uh who who cares about Europe, you know, they're a compared to the United States. Uh you know, who cares about uh uh you know, other countries. Europe was the same size as the United States at the beginning of the century. Its GDP per capita was getting there. It wasn't quite as I was bigger, more people, but it was the same size. Its stock market was worth the same thing as the United States. It is now half the United States. And I think a lot of this had to do with um the rise of tech and networking, which has affected many things, uh the geography of cities, many other things. But it's been very very good to the United States. We are the first mover in a lot of things. and the ability to catch up

ain't worth what it used to be right now so far could change. So this fact that we live in this world where network effects are very very big uh I think is is uh very very important. Maybe I'll say something at the end about today but I'm just looking at this the sweep of history here. Uh if you had looked in 1950 at the dollar and what who was using the dollar back then, it was actually pretty darn narrow compared to today. So this is from a quarterly journal of economics paper in 2019 except we couldn't afford to pay for color printing. So this is how we would have liked it to look. Uh uh this is uh the dollar areas in red. There there are many ways to measure how influential the dollar is, but uh Carmen Reinhardt and our co-author Ethan Elzitzki and I argue that a a good summary measure is what are central banks choosing to do? How are they managing their exchange rates?

Are they following the dollar closely? Are they not following the dollar closely? Are they following someone else? There are other measures. How much of trade is in dollars? Uh how much is uh uh financial instruments are in dollars? Uh how much uh uh how much foreign exchange transactions are in dollars. All of these things are are are kind of superficial though uh compared to I think to this measure and it it lines up pretty well uh with the broader measures when you look at it. So obviously the Soviet Union and China, the former Soviet block and China are in orange. They they were off in their own world, which by the way uh everyone at the time thought was catching up with the United States. I was an undergraduate at Yale in the uh early 1970s and the book book I used Samuelson which everyone was using confidently predicted that the Soviet Union would catch up. Um the White House believed that, the CIA believed that. Uh many economists did, many of the leading economists believe that. Uh wrote about that. um uh

obviously um uh we didn't know but I I think also there's a sense in which you can say well it didn't happen doesn't mean that it couldn't have happened there China showed a way later how you could adopt a communist system to do better there were actually some reforms that came close to happening in the mid60s in Russia that didn't happen that might have led to a different path But they were certainly uh uh a competitor of ours. Uh but in fact, oh notice Europe is in red because they were using the dollar. This is 2015.

This is also from that paper where it's a sea of red except in blue is Europe. They parted. They're not in the dollar block anymore. China, Russia become very dollarcentric. Uh yellow represents countries which are their exchange rate moves so wildly we can't classify them. Uh you notice some blue in Africa. That's the French former French Frank zone which stuck with the euro. Uh and I would just and and light red is countries that are sort of kind of loosely pegged to the dollar as much as they they're follow the not pegged to the dollar but use the dollar as a reference currency uh more than anything else.

I just emphasize how the red the what had been the anchor Europe if we did a trade weighted thing the Europe would be huge on that map and now it's gone and don't that's worth bearing in mind things change now I know what you're thinking looking at this map where's Greenland we forgot it in our paper I put it in the book it would make Europe look a lot better because It's really it has like you know 50,000 people and no income but it's really big. Uh so anyway but obviously that's why we want it you know to keep red very big in the map. Uh so um I argue in the book already that 2015 was a peak of dollar dominance where um if you draw this graph later I I draw it for 2019 in the book was the most recent I could do our algorithm uh these things take a long time to do and uh a number of things have happened.

One thing is Asia on an income weighted basis is half the dollar block today. Half. It's not all China, but a lot of Asia looks at the United States, but it also looks at China. China's the biggest trading partner for more than half the countries in the world. It's the biggest trading partner for many of the economies in Asia. And so, China's decision to follow the dollar was very, very important. They needn't have. I actually I have six chapters about China in the book. They needn't have I think it was probably not. They stuck with it much too long. And I think some of the problems they have today actually derive from that. But they started figuring out in 2015 to slowly move away from that.

They're moving away from it a lot faster now. I'll come back to how you can move away from it, but they're doing that develop just a statistic to throw out there is in 2010 0% of their trade was in R&B their currency. Now 50% is and it's something rising sharply. They're developing their own transaction system that are completely outside anything we can see. Uh so that's changing and Europe has long been very unhappy about having the dollar be so central. The pro it's the problem isn't that you know just that well we don't like it that people in Latin America are using the dollar more than they use the euro.

That's not it. It's that by being the dominant currency, we control the back office of the global financial system. We control a lot of the clearing mechanisms. You never see it. You know, you make a purchase from somewhere. But even if you do it in Europe between two European countries, many of the mechanisms obviously Mastercard and Visa like twothirds of consumer purchases something electronic purchases in Europe. We see it even sometimes when you're going between two exchange rates in Europe, believe it or not, it gets swapped through dollars. It turns out to be the dollar markets very efficient and we see it and the Europeans have known about this for a long time. I discuss it in the book. They've known we could sanction them. We've done it. We did it in 2014 when they wouldn't play ball back then with what we wanted to do with Iran. And so we threatened them, cut their banks off from our dollar clearing, which is basically cutting you off from everything. So the the Europeans are very very keen on moving

away from it. Also, I just came back from Brussels where I'd been invited to give a book talk to a very unusual group, the finance ministers of Europe. uh and uh maybe they wouldn't have invited me two months ago, but after Trump said he was going to take Greenland, they've suddenly got a lot more energized on this general topic. Uh and I can't, you know, talk more about it, but uh they have they have they're much more energized on things uh that they could do. So there reasons from the outside why the dollar may not preserve this 2015 uh level that we have. Uh it's it's efficient to just have one currency. Uh Bob Mandelle, a Nobel Prize winner. He was Rudy Dornbush, my thesis advisor, thesis adviser, so I would describe him as my intellectual grandfather. He would say to me, "The optimal number of currencies is an odd number less than three." And he insisted on that. But that's in a world where, you know, it's some sort of Star Trek future world government peace kind of thing. There's reasons the Chinese don't want that.

There are reasons the Europeans don't want it. And there are even reasons Latin Americans and Asians want other options because they had worried theoretically and now very practically about getting bullied by the United States. If the dollar controls everything, they control you. We're we've been using tariffs. We can also use financial sanctions. And the Europeans are keenly aware of that. And there there many uh dimensions to this, but there are also problems on the inside. That's what I was talking about at the beginning. Uh back when we went off the gold standard, it took us 10 years to kind of figure out what to do.

And only gradually did we figure out what to do. really when Paul Vulker was appointed to be chair of the Federal Reserve and started figuring out how to prioritize lowering inflation and that morphed into many things. It was really about central bank independence. I think I wrote the first paper about this. I was working for Paul Vulker. There weren't any independent central banks besides maybe the Fed, maybe the Bundus Bank at the time. Some say the Bank of Thailand, I don't know. uh and we developed uh we developed this device but that's something that's very important and you know is under challenge but also uh fiscal policy which I'll I'll come to in a little bit.

So before I move on, who cares? What's why is it good being the dominant currency? I mean, it's kind of cool. Uh everybody's talking dollars and it feels good and it can be convenient, but why is it so good for us? Okay, well, I mentioned one reason which is actually maybe the most important is that we control the global financial system. And I want to emphasize, and I talk about this quite a bit in the book, we don't just control it because we're so big. We don't just control it because the dollar is dominant. We control it because our military is dominant. And uh that's something that economists have just ignored. It's become a popular topic the last couple years, but for a long time, and you can read Paul Krugman again and again saying it's just irrelevant. It's not irrelevant because it's not that it's not that being a military power means nobody can invade you and steal your money. Yeah. It's that that gives you uh a lot of leverage in global negotiations over everything where the how the IMF is o organized how swift

that's the international clearing system how that's organized how everything is done that's something that is very apparent today because Trump again he's unfiltered just says it you know you do it our or we're not going to defend you. That's a lot of what's going on with the tariffs. But believe me, uh I guess Doyle worked for Ronald Reagan and I I think it's a wonderful president, a wonderful person, but I I bet he could be pretty tough when he needed to be with our in foreign negotiations. Lynden Johnson, you know, the president in the 60s was certainly he's a Texan and he could be very tough as everyone knows and I and there, you know, many uh books showing how tough he was. Uh and I and I think uh many other American leaders have. We you know have these polite negotiations where I'm going to be a little sarcastic and I apologize to Europeans in the audience. We kind of pretend we sort of care what they think about the way the global financial system should be organized, but then we

say no. I I relate something in the book. Uh this relates to another Texan, James Baker. Um is a story I heard from a classmate of mine at MIT who I can't name. uh who uh was in a meeting in the 80s where I think it was the Dutch finance minister James Baker uh became our finance minister. That was a Treasury Secretary. That's what uh John R. Connelly was. He was also secretary of state and by the way I think a great man uh overall. Uh he's a Texan. Um and uh in in uh one of the meetings uh the Dutch central banker was upset at what the US was doing and said, "If you don't agree to it, we're going to dump all our dollar reserves." And Baker repeatedly said, I heard this right after the meeting, repeatedly said something along the lines of, "My daddy taught me when you pull a gun on someone, you better be prepared to use it." And uh you know we we exercise this power and uh it's it has many dimensions but it's also crude interest rates. We pay a lower interest rate than we would otherwise. Not just

Uncle Sam, everybody. Your home mortgage, your car loan. I want to be careful to say we pay a lower interest rate given the amount we borrow. I know a lot of you are economists and I can say it shifts our demand curve compared to the demand curve for dollars compared to what it would be. So our interest rates not lower than Germany's. In fact, there are a lot of papers now saying if you look at 10-year interest rates, where's the exorbitant privilege in the dollar? It uh uh doesn't look uh like it's any lower anymore. But in fact, you have to think about it as the demand curve. If there wasn't this big foreign demand for dollars that comes from our dominance, we'd pay a higher interest rate. So that's that's certainly something important. And if we were to go to a more multipolar system, it would hurt. So first of all, demand for dollars would go down. It wouldn't be eliminated. It would go down. It would raise our interest rates. And I'm going to come to it towards the end of my comments, but it would we're already

suffering from our fiscal problems and we'll suffer more. Uh but it, you know, it would also make it much harder to use sanctions because right now, think of it as you only had Mastercard and Mastercard cuts you off, you're in trouble. But if you have Visa and American Express and Diner Club and you can do things that Mastercard can't see and can't control, I'm not trying to pick on Mastercard particularly, but it it it's going to make our sanctions less effective. And actually uh one of my former students Jesse Shrager together with Matteo Majiori, Chris Clayton and some other another couple former students have a paper arguing that this the ability to use sanctions falls off very fast when your market share starts falling. they I think have some back of the envelope calculation when it goes from 85% to 70% you know you lose a lot of the power that it might have. So there's there's a a further advantage that's often pointed to that's a little fuzzed but interesting. Uh it's called exorbitant privilege and you see this

phrase used all the time. There are about 10 different definitions of it. I I try to be coherent in my book. So this was first proposed by the French president Jarard Dang. Apologies if I'm not saying his name correctly. uh he he was prime minister at the time, but he said, "I don't like it that the dollar gets to be on top because we have to hold these dollars which don't pay a very high interest rate and Americans get to take that money and invest it in Europe, buy factories, uh buy land, buy all sorts of stuff and they get a big return. I don't like it."

And and that's absolutely true. And I think people, you know, still that's a very central meaning of absorbent and privilege. I'm I shouldn't take a tangent here, but I'm going to. A lot of people, including evidently a lot of the president's economists, think being the center currency means you run big deficits because people need to hold your money. That's just so wrong. Uh the UK, it was the dominant currency for 200 years. They ran surpluses the whole time. We ran surpluses in the 50s,60s and 70s. We were the dominant currency, but we ran surpluses because of course you can get dollars by selling land or selling buildings or selling something. You don't you don't need to run deficits.

That's just uh completely wrong. But it's certainly true that was the engine uh and it was great. And uh I h I have a brief story about my uh great aunt Henrietta who uh grew up in a very poor New York family. It was always her dream to make shoes. And during the 1950s she was able to build uh make shoes in Italy and get financing because she was going to be selling them back in the United States for dollars. And uh this is a these are pictures of her shoes and and and she did you know pretty well. She would have done a lot better if she bought this picture. This is an Andy Warhol and uh this is from McCall's.

Those of you may know he got his idea for drawing soup cans and stuff because he was drawing advertisements. That was the thing he first did. Uh we've tried to find this since but have not found the owner. uh unfortunately she didn't buy it but uh uh anyway that there's this broader idea of exorbitant privilege but I won't uh go too far a field so we've had some uh a number of countries come at us for not just for market share but even for dominance and I would say the one which came really close to kicking our ass so to speak sorry I'm in access. Um, they was Japan.

Japan was killing it in the mid 1980s. Now, their population was only half of ours, but England's population was only a quarter of France's, and they were the dominant currency. Actually, as the book discusses, the Netherlands were the dominant currency in the 1600s, and their population's half of England's. It's not all about how big your population is. So, Japan uh had a higher per capita income by depends on which measure you use, but at market exchange rates much higher at purchasing power parody rates pretty darn close.

This is a graph showing the value of land of real estate uh household real estate in Japan relative to the United States and it was way above the United States. This is at market prices even though Japan is actually slightly smaller than California. You can say okay real estate it's illquid. What does the market mean? I could show you the same graph. It's in the book for the stock market. You take Japanese stock markets, compare it to the value of all the US stock markets. It was more. This is market traded. The world valued Japan Inc. more than US Inc. by at least that measure. And Japan was coming on very strong. And uh there's this episode of the Plaza Accord uh and I talk about it in the book and I was a researcher at the Federal Reserve Board working on it but not knowing that's what I was doing.

Uh and I met James Baker who was the architect. I've talked about him already of it later. You can read the book about it. uh in the Plaza Accord. Um we basically pushed Japan to make their exchange rate stronger so they'd be uh a little less competitive. We thought they were holding their exchange rate down. And I have to say for years I thought that was nonsense. We were manifest destiny. The United States was going to do way better than Japan. Japan was never going to succeed all that well. And I I would say and and I should say um many Chinese leaders and financial leaders have told me that uh at various times we will not let you do that to us.

The US forced Japan to appreciate its currency. It was a disaster. That will not happen. Uh well, part of the problem is when they went to appreciate their currency by 10%, which is what they agreed to, they didn't know how to stop it. And uh actually um instead of going up 10%, this is just look at 1985. It went in it doubled. So if they're half as many yen, the yen's worth twice as much. And they did some other, it wasn't all about that. They did some other policies. It was a disaster. So this is often called the Plaza Accord after the New York hotel where it was agreed to. Now, you've probably forgotten about this, but the Trump administration was very seriously pushing this idea of the Mara Lago accord because Steve Moran, who was the first chief economist for Donald Trump at the uh at uh the CE and later went to the Federal Reserve Board, he wrote a paper early on just before the administration that everybody loved.

Scott Bessant with the Treasury Secretary was advertising it everywhere for a long time that said you know what we did to Japan we do that to everybody not just Japan that was what the concept was so I think that was actually had I I think had Japan gone slower on liberalizing its economy on moving it wouldn't be the United States but it would be doing a lot better they have gone from being about equal per capita income to basically being lower than Mississippi today. Mississippi is the poorest state in the United States. And part of that is how they responded. There are a lot of people who say, "Oh, Japan has a lot of debt. That proves debt's not a problem."

Well, sure, if you don't care about, you know, your income or anything like that, it's uh that's So, anyway, Japan didn't match us. Europe. Uh, I don't have time here to talk about at length, but in brief, I think if you hadn't put Greece in the Euro prematurely, they'd be doing a lot better. And I I know it's fun to kick around the Europeans and all their crazy regulations and everything, but the the Europe the Euro debt the Euro crisis was a disaster for the euro. They had grown to 25% of global reserves.

They had grown to doing very well. It fell to I think 15 14% after the euro crisis is climbing back. Uh the euro might have done better uh I and and I think could do much better uh in the future. I'm going to skip it. Um China is sort of our current competitor and views about China have changed a lot. I talk a lot in the book about China where on the one hand I do think China's going to break free of the dollar. I've already explained to you why I think that's going to happen. On the other hand, this idea that many people had that China was going to surpass the United States uh which I I would say was conventional wisdom just way overblown.

I had some intuition about this from my book on financial crisis with Carmen Reinhardt where often financial crisis start in real estate. I had some I would say aggregate limited data on China that I saw in prices and I started talking about it really 10 years ago and I because I had some notoriety from this time is different. It it got some prominence that people saying it but you know not taken seriously. But the Chinese invited me to speak and I actually got an opportunity to speak to this thing called the China Development Forum where you speak to literally 3,000 people. You have all the leaders of the Communist Party except for the president, all the leaders of the West, banking, tech, business in the audience.

Uh I spoke at the opening plenary to this group. I was told to give I was supposed to write my remarks but I never do that as you see now. Uh I spoke impromptu and you know I I sort of gave the reasons why I think you're in trouble. Uh and I pointed to demographics. I pointed to uh many uh uh overbuilding but particularly in real estate where I said this has been the source of a problem for many countries and you have all the red lights blinking. you're gonna have a problem. Uh I got off the stage and I was greeted by the deputy premere who said, "Uh, Professor Rogoff, we we very much appreciate your remarks." And I was thinking, "Oh, is that what they say just before they arrest you?"

But I got out of the country and uh based on that I was very lucky to meet this brilliant young Chinese woman who was very rebellious and independent fromQing Wa who was visiting Harvard. she was still a graduate student at Ching Wua and she introduced herself to me and said um I you know have worked with a lot of the statistical agencies and I know something that can be done to make it much more concrete uh and so we uh we produced a a number of papers and various journals. This is just an aggregate paper that sort of captures one thing we did which we constructed how much housing per capita China had.

This is just a a very crude measure. It's per capita housing space. You know it's not adjusting for quality although actually in China it's not bad. Uh it's a lot of it's very new. It's very standardized and uniform but it's it's it's pretty new and it's more than the UK and France. And this is we have a lot of statistics and figures in our book, but this is the one that blew our minds. And how were we able to do it? Because China's so secretive about its data. If you want to know vacancy rates, that's what an economist would want to know if there's overbuilding. That's a state secret. If you want to know youth unemployment, state secret. But they were so proud of how much infrastructure they built, how much housing they built.

You could find it block by block digitized on the internet which we used over over a long period uh to construct these data and they've since been checked by many people in many ways and they had built all this housing and we started talking about again visiting this theme they might be about to have a crisis. We were told uh this was nonsense by leading China scholars in the United States. Uh in China, I'm told that the leadership was aware of the work, but you were not supposed to talk about it. Uh and it wasn't published, you know, not discussed in the Chinese press. They just published these things that everything was great. And to make a long story short, uh they've had they've been, you know, it's been a they can't hide it anymore. They've had bankruptcy after bankruptcy, disaster after disaster. It is casting a huge cloud over the Chinese economy. Uh the prices are in freefall. Everybody knows that prices in China, which again are kind of a state secret, but by our data fallen at least as much as they did in the

United States in the financial crisis. And it's a problem in China because this is uh this is from a paper of ours in the journal of international economics uh where it shows the value of household wealth. It gives it for two years 2022 and 2023. The reason red is lower in China is housing prices fell and to the extent we can capture it. Um but you can see housing's really important in China as a source of household wealth. If I threw bonds in here, it wouldn't change things. We have in another paper, it wouldn't change things very much. So, the fact prices are falling so much, that's why they're in deflation in China. That's why China has a problem.

That's why no one wants to consume. That's why no matter what stimulus they try to do, it's not very easy. Uh it's it's uh it's quite uh challenging for them. But again, I still think uh they're eventually going to do something about it. Uh I'll I'll skip this. Another competitor for sure is cryptocurrencies. In fact, uh maybe Marco and I can talk about this more because I I should wrap up soon. Um but uh cryptocurrencies I don't think will ever replace the dollar and the legal economy. We can discuss that. But there's a big global underground economy. Uh the World Bank did a meta survey of studies which are all pretty seat of the pants estimates that in advanced economies about 17% is underground not taxed not measured by the government and it in a developing economies it's twice that basically uh this is from a kind of cool paper I published with Franchesco Papata last year in the journal of the European Economic Association. It's also this table's from the book where we used value added tax data to try to figure

out how much taxes people are avoiding and we use how much value added taxes were being collected across Europe and then using survey data largecale surveys that were being done to form completely different indices by the European Commission we compared it to what people said they were buying. And these are the shortfalls we found. Uh they look amazingly like the meta survey that the World Bank did for European countries. My co-author Stephanie not co-author um my uh colleague Stephanie Sancheva who some of you may know won the Clark Medal in the US uh this year. Um she's a French Bulgarian economist looked at this. Stephanie's done papers on the the so-called shadow underground economy. And she looked at Bulgaria and she said, "You know, I really like your methodology. I like your paper, but Bulgaria is wrong. This just can't be."

I said, "What do you mean?" She said, "Well, you know, I go to Sophia all the time. There's no way it's just 20% in Bulgaria. I mean, everything's underground." Uh, so cryptocurrencies are can be used here. And I don't want to get into the weeds of what currency cryptocurrencies why and when. But they're they're certainly important. I'll skip this too. I'll skip this one. I've central bank bank independence. Marco and I can talk about uh obviously is one cornerstone. Uh and I just don't want to get into it.

It's obviously a problem. Everybody's concerned about it. But I also think debt. This, by the way, is my friend David Blaine, who the younger of you may not know who he is, but he's a an amazing magician who once held the world breatholding record, and he's like a few miles up there. And I'm making an analogy to the US debt. uh the US has as much a debt as all the advanced countries together is a little exaggerated by the fact the dollar is so strong and I've converted everything to dollars so wouldn't be quite so much um a uh another graph I don't have here is if you looked at global trade deficits current I'm going to use the word trade deficits I really mean current account deficits but those of you that are in the weeds will forgive me the slight difference. If you looked at global trade deficits, it's just the United States. Yeah, there are other countries running trade deficits, but they're tiny. So, you look at a graph of the world's surplus countries and the world's deficit countries. It is 90% the

United States. Uh we are a big borrowing country. So, for a long time, people said, "No problem. You don't have to worry about it. dead as a free lunch. And I went around the world in the 2010s debating Paul Krugman, Larry Summers, remember secular stagnation. He doesn't want to remember it, but you should remember it. Uh Olivier Blanchard still sticks by debt as a free lunch. I debated Peter Teal actually, believe it or not, at the Oxford Union, and I said, if if you look at history, we're in an a period where interest rates are low. We've real interest rates are low. We've had it before. They're low until they're not low. And you just Why would you think this goes on forever? And all these stories about productivity.

I'm going to come back to that. Stories about uh demographics and they're just going to stay low forever. And the fact is is that real interest rates are very hard to explain. This is a graph of the 10-year inflation index Treasury bond uh which has been moving up the last few days because somehow people aren't seeing the dollar as quite the flight to safety that they used to uh in the current war episode. Uh so what is this? This is you you can buy this about 10% of our debt is inflation index. So you get a much lower interest rate. It can be even actually negative because you get compensated for inflation. So it's not perfect. There are tax issues, but it's a measure of what we economists call the real interest rate. And that's the interest rate that you know uh sort of very dependent on investment demand.

And you can see it actually averaged zero from uh 20 rough roughly uh 2010 through 2022. And now it kind of looks like it did in 2024. So, I had worked on this paper for a long time. Oh, I'm missing uh I'm missing something here. Didn't show up, but I'll try to uh if I have a laser with this. Um if I do, I'm not figuring it out. And I hope I didn't just do anything. Um, this is a paper from this is a graph from a August 2024 American Economic Review paper with two former students of mine who have far surpassed me. I don't want to pretend they were working for me in this paper. Uh, quite the contrary, uh, Paul Schmelzing and Barbara Rossi uh, where we put together very longun real interest rate data. This is a very grandiose one where it looks at a global average of uh countries over eight centuries, but you could look at just the UK, just the United States and you'd get a similar picture. So, one thing is it's really volatile. It's not as volatile as it looks here because it would sandwiched all this data into a

short period. If I stretched it out, it would look a little less extreme, but it's very volatile. You shouldn't just extrapolate whatever it's doing at the moment. It's very hard to predict. Uh I've drawn a trend here, but actually if you start at 1900, it it went down for a long time because uh governments became safer. They were less likely to lose a war. Markets became more liquid. But around 1900, that's slowed down. The there hasn't been an obvious trend. And it what people like Larry Summers were pointing at was that the very end, I failed to circle it here, but the last few years there's a downward slope. The la there's a 30-year period where there's a downward slope. But of course, if you went back earlier, there's a 30-year period where there's an upward slope.

You just can't extrapolate this. And I will only say that the stuff like demographics, uh, similarly, yeah, it works for a couple decades. There's a lot of papers on this that are theoretical papers, but there are other things that affect interest rates. One, again, I emphasize quite a bit in the book, is military spending. We had the peace dividend until we didn't. So, this is a graph of spending on national defense as a share of GDP. I just took the graph from the book. It actually continued to fall down to 3% under Biden or 3.1%.

Uh and it was it was twice that more than twice that uh when the Cold War ended just in 1989. It been way higher in the Vietnam era. And that's not sustainable. And I'm not even looking at the Europeans who effectively spend next to nothing on defense or the Canadians who spend even less than the Europeans. This is, you know, certainly an important uh thing that's changing. I think populism is going to make spending higher. Uh there uh the fact that global debt has grown so much is probably most models suggest at least some effect from that. So I think this idea that everybody had that debt was a free lunch was just uh overblown. And I will say progressives who uh I hit it both sides in the book. Uh, and they've both on the whole been very nice to me thinking that I was mostly criticizing the other side and not their side of choosing to selectively look at things. But the progressives who say anytime you uh scale back deficits, it's austerity.

They're shooting themselves in the foot. If you want to redistribute income, tax people more. And you know that's that I don't think you can count on interest rates staying low. I'm going to finish with AI. There's some people in the audience, at least one, who knows a lot more than I do about it. This is a 2012. I was a professional, but had stopped playing completely in the late 1970s because I was afraid of computers. I had seen some of the early computer programs. I thought they would come faster and harder than they did. Uh this is a the only game I had played against a human uh Magnus Carlson who's by far the best player in the world in my opinion even today by this was 2012.

I showed this picture just because I want to I made a draw and I'm never going to play again. But I I think uh I think people who point at AI as saving everything uh might be right. But it's it's a very complex because there's a lot of volatility that uh goes into that. Let me just pick one point about that. A few of you who are in the markets or you know read the newspaper which you don't have time to do as a graduate student I know but uh there's all this talk we have productivity coming. It's going to lead to disinflation. You hear that all the time. Well, that's kind of nonsense at one level because the central bank can make inflation anything at once. A lot of countries have inflation around two or 3% now. Some of them have no growth.

Some of them have fast growth. Some of them have a lot of productivity growth. Some of them have, you know, almost negative productivity growth. They all around the same what the central bank can choose inflation anything it wants. What really productivity affects is it affects what interest rate do central banks need to choose in order to get it towards 2% inflation. That's a much more precise statement and theoretically it is somewhat ambiguous but not that ambiguous. Mostly we think periods of high productivity growth are associated with high real interest rates. So remember, if you listen to Paul Krugman and Larry Summers, they were saying, "We're going to have low interest rates forever because productivity is going to be really low." And of course, we have Kevin Worsh who's uh coming in uh saying, "I can bring interest rates down because productivity is disinflationary and so interest rates can come down." He might be right. I mean, I will I there are many super brilliant people who can

write down some model where that's true, but I I wouldn't I wouldn't say it's the norm. Uh I've gone way over. Uh but uh finish with two things. What happens when I do think we'll run into trouble at some point, not because we have to, but because you can't get anybody to do anything until we will. And I think when it happens, all bets are off the table. I think the leading idea is inflation, financial repression, which means forced debt holdings. But the Mara Lago plan, I didn't go into the tails, called for defaulting on our debt. It called for a default. And it and that's he stopped, but was cheerleading this paper. He was advertising it. And you Donald Trump is certainly uh willing to do hetradox policies. And by the way, defaulting is not always the wrong thing to do. We did it in the 1930s. I mean, Franklin Roosevelt's praised as one of our great presidents. Uh, all bets are off the table and we'll see. Uh, this is, uh, my book um, uh, which, uh, Doyle mentioned, this time is different. Uh, we worked on

it for seven years, by the way. It came out in 2009. Uh, it's a massive database. It ha it has a 200page data appendex. Not data appendex but uh well sort of a it gives our data sources over 200 pages. Somehow a year into the book not right away but as the financial crisis unfolded in the early stages people looked at things we were saying and said that's nuts you know that's just not going to happen. And then a year in it actually reached fourth on Amazon of all books for about a week. Uh it we were behind the three girl with a dragon tattoo novels because we didn't have sex and violence in that version.

But uh you know we'll see about the next edition. Anyway, I'm sorry to run so much over but thank you. I'm Mar

was a great lecture. Thanks a lot. Um, so I'm Marco Basetto. I'm a monetary advisor at the Minneapolis Fed. I will be joining uh the economics department here uh in the fall as the Douglas Lee Professor of Economics. >> I'm glad you said that because I thought it was a secret. I couldn't say anything. >> Um he's fantastic. >> I should mention uh that I'm not going to say very much because we want to listen to Professor Agoff. But whatever I say is my own views, not those or the Minneapolis Fed or the Federal Reserve system or anywhere uh related to the levels of power. Um, so I'm mostly going to collect questions, but given that Professor Gooff uh sort of hinted at a couple of questions I could ask that actually turned out to match very well with what I was curious about, I'm going to ask one of them to kick us off right away, which is about cryptocurrencies.

So you made a case you make a case in the book and you briefly mention here uh that cryptocurrencies have a clear uh value for the private sector. Of course if you're the government probably you don't like the fact that they have a value for uh for the black market but you know there is a clear value potentially um and therefore that they're here to stay. But at the same time um that brings up the question which cryptocurrency there are many um is that gonna be stable coins is that going to be uh currencies like Bitcoin and you know in your own work you pointed out that having some real anchor is certainly an important component of what makes sure that a currency will retain its value in in the long run and cryptocurrencies don't have Um what do you think?

>> Um so uh stable coins right so Bitcoin was used early on uh it's still used for ransomware and stuff but it was used early on and then it's been largely replaced for the moment by stable coins. Let me say what a stable coin is. It is a cryptocurrency. However, that there's some pool of money associated at the moment with some private entity who will give you a dollar. You know, usually they're in dollars and usually it's the major ones are one uh tether, you know, one to one and uh circle their currencies also onetoone with the dollar. It looks a little more complicated than that. you as an individual can't go get the money. Uh and so they have largely replaced uh Bitcoin. However, I think that's temporary. I don't think that's going to last. The reason is is that the regulation we've had of them has been stupid. Uh we allow them to be backed, but we don't really um regulate how they're traced. And not to get in the weeds, we just had a big act in July called the Genius Act. President Trump

has a gift for naming things improbably. But then Biden had the inflation reduction act. So what can I say? Um the most inflationary in inflation reduction act ever. Uh, so we're we've moved into temporarily into a stable coin universe where it's being regulated like cash. When I take money out from Bank of America, uh, they know I took it. In fact, the government even knows if I took it if it's over $3,000. In fact, you would probably know this very well because I I think actually it was one of the regulators at the Minneapolis Fed who explained this to me. If you take out $3,000 over two weeks, it has to be reported to the government. They see it.

But once I start giving the money out for I give it to Marco or give it out, they don't know. That's why people like cash. That's why it's so useful in money laundering and everything or avoiding taxes much more specifically. And cryptocurren the stable coin acts have been designed in order to mimic that. And the trouble is stable coins aren't just a substitute for cash. They're a substitute for uh debit cards, credit cards, electronic transfers. They're a substitute for everything. And the government shouldn't want to do that.

And they're they're perfectly good ideas for trying to regulate it. Daryl Duffy has a paper he's had floating around for a while and there many others. There's a bit of debate, but it's very straightforward to do. And eventually we'll figure out that we have to do that and then Bitcoin will be used again because right now the stable coins are basically very very hard to trace. So this is something that goes through cycles and if you say which cryptocurrency I I'd have to say into the foreseeable future Bitcoin that's like a long story of why what's the first mover advantage.

So, uh, I've written for a long time that Bitcoin, uh, isn't worth zero as so many people said I the, you know, the head of JP Morgan, George Soros, it's hard to keep picking on Paul Krugman, but yeah, I should keep picking on Paul Krugman has said that it's worthless. Many, many good economists, Gene FMA, many, many other good economists. Well, you know, uh, it's not worthless. Now, what it's worth does depend on how you regulate it. And I don't want to give too long an answer to that. You could regulate the banks around it. And if you can forgive me one other tangent, I've followed Bitcoin since its inception.

I discussed this a little in the book, but my daughter Juliana when she was 12 uh had a high she and a few she was in middle school actually, but a at a high school that had a middle middle school and she and a couple of her classmates were doing Bitcoin mining. Now Juliana's very very bright, but actually those of you that are in the weeds on this know that if you went back far enough, it wasn't that hard to do. It didn't take that much computing power. They made it harder. The main thing you needed was electricity.

And maybe they tapped into their high school's electricity a little bit to do this. And she had 25 Bitcoin that she had. And she goes, "Dad, I have 25 Bitcoin. Somebody offered me an Amazon gift card for $700 for it. What should I do?" So, I looked up the market price. I'm an economist, which was 10 bucks, you know, back then. And I said, 'Well, you know, it's up to you if you want to keep it. I really didn't tell her to sell it, but I sure didn't tell her not to. She sold it for the Amazon gift card. I She remembers what she bought for it, but I'm never going to live this down. She could have paid for everything. Uh so I I I say that that, you know, I you have to have some humility about these uh these new technologies.

>> Should we collect some questions from the floor?

If you could just >> since you you brought up AI productivity towards the end, I'd like to quote something you wrote in 2012. Since the dawn of the industrial age, a recurrent fear has been that technological change will spawn mass unemployment. New classical economies predicted that this would not happen because people would find other jobs all by possibly after a long period of painful adjustment. By and large, that prediction is proven to be true. So my question is with the current tsunami of coming how long and how painful adjustment do you expect to see?

>> And you didn't mind introducing yourself professor of computer science. >> Ah okay. I'm up against uh somebody very knowledgeable. Um so I actually wrote this paper. I think it was called this oped. I can't remember when I wrote the first one because I revisited a couple of times. I think it was actually in 2010 I wrote the first one called Grand Masters in Growth and I was saying I I've looked at chess and I've seen God and anyone who all these people like Robert Gordon and others who are writing papers why there's never going to be productivity again they have it backwards that the problems that productivity is going to be too fast and actually my debate with Peter Teal at Oxford Union and he had Gary Caspar as a partner I had a partner too named Mark Shuttleworth Earth. Uh they debated there'd never be uh productivity increases again. Evidently, Peter Thiel didn't invest on this hypothesis, but uh that was what they were debating. And you know, I'd watched what had happened in computers. And yeah, I I mean I So,

those of you economists know there's a big debate about this in economics. You can find Nobel Prize winners on both sides of this even at the same university. Uh Daron Aimoglu thinks we got a problem. Simon Johnson I think's weighed in on that side. And David Otter and many of the top young professors at MIT all say kumbaya it's just going to be great. You don't have anything to worry about. Uh, I have to say my com I don't want to name names, but I I've known some of the very top people in AI the whole way because of uh they've all had an interest in chess and they keep saying to me, Ken, why doesn't anyone in economics work on what's going to happen when there are no more jobs? I mean, I don't know where we are. So you know the basic question is uh do are are we seeing the the the Daran Aimog case and he gives a very sophisticated statement.

I don't like you know but I I I think certainly comes down on the side of worrying about it. The the case why we have to worry about it is that it just does things humans do does it better and we get mass unemployment. The David Otter thing is we do different jobs, everything adjusts. There's there's some empirical work on it, but I'm trying to think of a gentle way to say that it's kind of meaningless because they typically look at one firm and all of it, the rest and all. They're looking at one firm. You can't tell anything. It's a general equilibrium problem like where are the other firms going to go? Where are the jobs going to be? So uh I should say there's a third school I I know of a paper by Chad Jones and maybe there are others. Uh so in the first school capital share of income just soarses. We have Karl Marx's problem times 100. In the second one labor share stays good.

We all get richer. We're all happy. But there's a third one where labor share how much does profit how much goes to profits? because labor stays stable but it goes to an shrinking number of people in the labor force. So the people who know how to work with AI their incomes go up and a lot of other people are unemployed. I I think into the foreseeable future that is the most likely outcome. That's a wild guess. I don't know. Uh but no, I think I think it's a I think it's a real concern. again uh you're uh you're sitting next to someone who uh also knows a lot about this. Uh both of you know much more than I do. I I but I I'm I'm quite worried about it and society's ability to deal with it. And I I wish that was the only thing I was worried about. I also think we failed to put safeguards on it. I consider the fail the fact we didn't put safeguards on social media just the stupidest thing ever. and AI. My children who are in AI uh or adjacent to it tell me it's 50 times what social media is. We've just seen it in war with

the anthropic uh uh defense department. And I'm not even getting into the existential things. So, uh you know, I think it's I think it's not just that we're anxious about change, but it's so fast. And that's a long answer. And I'm sure you could have gotten a better one, but uh thank you for asking. >> Thank you.

>> Hello, my name is Nisha Desai. I'm a entrepreneur. Um I'm curious how much do you think that the total economy the global economy can actually expand? Right. when you think about um you know I think about like asset valuations and you think about all the stuff speaking of AI right you know the amount of revenues that theoretically would have to be generated to justify the current valuations of AI companies and if those revenues are being generated with AI models theoretically companies are only paying that for AI services because they are achieving benefits in other ways etc right I I mean, yeah. What if when you when you play that out, right? How how much growth could you see in, you know, topline GDP to justify all of this?

>> So, we economists are not good at this. Uh, famously, Alan Greenspan said, you know, made a statement that the market was way overvalued uh back in 1996. and he was building on something he just saw Robert Schiller who's another Nobel Prize winner say. And the interesting thing about their remarks is the stock market continued to go up for years. There was a crash but it never reached down to the level where when they said you should sell. Uh and so I think we you know it's very hard to know whenever there's a new uh technology. One of the tricks is actually what's the right interest rate to discount the future profits at. But I will say I think a piece of what's going on is that there's a view that a firm share of profits is going to go up and there's enough monopoly power that it makes the firms more valuable. But yeah, I mean uh I I mean you're an investor who thinks about this every day and I just uh hold an index Hi, my name is Alex McDonald and I'm retired and I'm I'm curious. You you

showed your maps with the colors. >> You're retired and you did from what? >> I uh I had a business that made truck bodies and trailers. Um but I'm curious, you had the map of the red countries and blue countries and so on and you showed us the 2019. Um and >> I showed you 2015. >> 2015. You mentioned 2019 was in your book, I think. Um, and my question is, um, that map from what I can tell is changing maybe rapidly or at least more rapidly than it has in the past. And you mentioned uh the dollar privilege in terms of interest rates. And 85% versus 70% is sort of has a big effect. And I'm so I'm curious how you see that today uh that do that that privilege that the the dollar has and what are you looking for as telltale signs that that privilege is is either dropping or or will sustain itself. Thank you.

So um on the telltale sign the thing which is you know empirical is that you'd see the interest rate go creep up although there are other things that make the real the real interest rate there are other things that make the real interest rate move around so it's not that clear and the benefit of being able to use financial sanctions you'd see us have to go to war more instead of using financial is not it's not that easy to measure there are a lot of papers on it so economists have come to this estimate for a long time. It's worth about 1% a year. Uh but it's not an easy question to know. But the bulcanization of the global trading system, the global geopolitical system that that has to play into that. uh I wrote a paper 25 years ago with Mory Obsfeld which argued that if you put frictions into the trading system that actually had effects on the financial system and since there are many economists I know you're not all economists in the room our paper said if you look at general equilibrium putting

in the trade restrictions turns out to affect finance in a lot of ways so it's funny you know I sure if you ask the Trump administration Do you like that the do that the US is so dominant in finance? They'd say, "Yeah, but we're just putting taxes on trade." No, it doesn't work like that. And if you don't see that point, just consider you had such high tariffs that you're shut off from trade. Obviously, nobody's investing in your country. But the proposition we showed was that that works proportionately. So even a 10%, you know, trade cost uh has an effect.

So I c I certainly think the bulcanizations can have an effect. Uh but but there are a number of metrics like what you invoice and uh bond how bonds are measured and stuff and they're they change very slowly but the thing that can change them faster is a war. I mean I think they're going to change regardless. uh if we're in Iran at the moment and I'm totally rooting for that to go great and that's going to be good for the dollar. No question about it. But if Iran is another Vietnam, it's not good for the dollar. So, uh you know, we'll see.

>> I'll ask a final question. >> I think I think Oh, okay. >> You ask. So, your book, the latest one, our our dollar book went to press or was buttoned down about a year and a half ago. >> Uh, God, I'm not good at my math, but yeah, October October and October >> 2024. >> You wrote an addendum to the book today. What would you retract, say differently, or add to? What what's the what are the one or two points that are more salient now than ever or what? >> So I actually just finished a preface to the paperback which will come out. I didn't change anything else.

>> I don't I don't need any royalties. Thank you. >> No, no, no, no, no, no. I I'm not I I ask but where I asked that question actually I changed very little. I I wrote it so that it was looking at these longterm things. I think I think I was kind of right about a lot of things and emphasized things that I would emphasize again. Yeah. I mean, obviously I had no idea how extreme Trump would be, but I talk about things he wanted to do in the in the book. He talked about wanting to get rid of Fed independence. I talk about it, by the way. So do the progressives. Uh, you know, he talked about all the tax policies. So on the macroeconomic side, I talk about it and I also, you know, talk about some of the military stuff. I do point to one thing.

I try to I try to take a very apolitical view in the book. I I I will say I'm one of the 3% of Harvard professors who describe themselves as conservative. I was a Clinton Democrat, which makes you like a Neanderthal, you know, at Harvard. Uh but I tried I don't I don't want to be getting into the political noise. I think this is about deficits about Federal Reserve independence. It's about our military strength. It's not about some of these social issues which are defining uh in the political debate and I don't want to wade into that. Um, but if I had to point at one thing that bothers me and I would have felt remiss not to talk about corruption, uh, the appear and I use the phrase in the book to try to be apolitical, the appearance of corruption because you can spin it different ways. And I do worry that that undermines our brand. There's also the rule of law. I mean, imagine that, but I mean the corruption's pretty clear-cut.

I had a a papers and proceedings paper coming out with Max Harris where we do calculations of the famous corrupt presidents and how corrupt were they. So it turns out Ulys's grant you know still might be the champion if you did it not on dollars. I think it was only $4 million but as a percent of annual wages an annual wages whereas through his first year using the New York Times which clearly is not a friend of Trump uh what of their estimate was Trump's not quite there yet he has three years to go uh but I I I think that's very problematic uh and I think if we don't I I was not as I would I was not enthusiastic about what the New York Democrats did. I thought it was counterproductive, but I I think this corruption issue is uh something that could undermine our brand.

>> Let's uh give a warm round of applause. Thank you.

ask question.

Thank you. Thank you. We just

It's way I'm gonna be really low.

Exact.

I was just thinking

Oh my god.